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What will happen to Ethereum with the transition to Proof-of-Stake?

How will the price of Ethereum change?

Many support Ethereum and believe that investing in ETH is profitable. The high demand for this cryptocurrency was once the cause of increased prices for graphics cards.

What will happen to Ethereum with the transition to Proof-of-Stake?

Just a month ago, Ethereum announced the launch of the Beacon Chain Sepolia test network, which is the main rehearsal for the transition to the new consensus algorithm. When everything is ready, the Ethereum mainnet will merge permanently with the Beacon Chain test network, becoming a part of it. Despite the shift from Proof-of-Work, the entire history of Ethereum remains unchanged after the transition to Proof-of-Stake. Any funds stored in a user's wallet before the merger will remain accessible after the merger.

The merger is an upgrade to the Ethereum network that will fully transition it from the Proof-of-Work algorithm to the Proof-of-Stake algorithm. What will this achieve? It will reduce energy consumption by almost 100%.

The final merger has been expected and delayed for many years, but now it is truly imminent and will occur in the second half of this year.

Will the completion of this process be successful? Most likely, yes, but there are always risks that are difficult to assess.

For example, in the late spring of 2022, the Beacon network experienced a reorganization of 7 blocks. This occurred as a result of different clients running different updates, which was unexpected. Of course, this did not have serious consequences, but the question is whether such a situation will happen again.

The essence of the Proof-of-Work (PoW) method is that the miner's technical equipment solves complex mathematical problems. The miner receives a reward in the form of cryptocurrency for adding a verified block to the blockchain.

Proof-of-Stake (PoS) means that the miner locks a predetermined amount of coins to verify a block of transactions. The cryptographic computations are much simpler for computers. You only need to prove that you own a certain percentage of all the coins available in that currency. For example, if someone owns 2% of all Ether (ETH), they will be able to process 2% of all transactions on the Ethereum network.

What will happen after the transition to PoS?

With the transition to the PoS method, the reward for staking will also depend on "tips" and the miner's ability to extract value (MEV).

The merger process will pave the way for further updates that are not scalable with PoW, bringing Ethereum one step closer to greater security and stability.

MEV (Miner Extractable Value) is a measure of profit that validators can obtain by including, excluding, or changing the order of transactions in the blocks they create.

The transition to PoS will be accompanied by high volatility in ETH. There may be a short-term price decline at first, but it will be followed by growth. However, at the moment of the immediate transition to PoS, the price may unexpectedly plummet. The positive news about less energy-intensive mining can support the idea of a "green" trend and the idea of preserving the environment.

After the merger, miners will disappear as a source of price pressure, and the new amount of issued ETH will decrease to 1,500 per day. The existing issuance will decrease by approximately 1-2% per year. A successful merger cannot increase demand, but it will decrease supply, which will serve as a strong reason forprice growth.

What does the creator of ETH think about this?

Vitalik Buterin himself is concerned about the further process of the merger. He worries about the increased centralization of the Ethereum blockchain. In an interview with Fortune, he was asked directly if he has any doubts about Lido Finance. This organization is a decentralized autonomous community and the largest provider of staking services for Ethereum. Vitalik is somewhat worried about the accumulation of a large amount of ETH in Lido and the possibility of them slowing down transactions on the network.

Is there a chance to profit from the merger?

Let's talk about a few strategies that could help you profit from the future upgrade of ETH 2.0.

  1. According to estimates from various analysts, at the current moment, the transition factor of Ethereum to PoS (Proof of Stake) is not fully priced into ETH, which could have a positive impact on the price at the time of the upgrade launch. Of course, it is impossible to predict the rate reaction with certainty, but the tactic of buying ETH for speculative selling after the network update is a popular topic among investors.
  2. You can acquire assets related to the Ethereum infrastructure, such as Ethereum Classic and Polygon. In the first case, ETC may increase in price due to the majority of miners transitioning to this blockchain. And contrary to the common belief that this sidechain may become less useful after the release of ETH 2.0, MATIC may grow because the technologies of these two ecosystems complement each other, and Ethereum needs Polygon, while Polygon needs an improved Ethereum.
  3. You can already earn from staking ETH 2.0 even before the official network update. This opportunity is offered by all popular exchanges. However, due to the specifics of this process, you will need to buy synthetic tokens like BETH or stETH, which represent something like a pledge on ETH that will be issued after Ethereum transitions from PoW (Proof of Work) to PoS. But one of the peculiarities of such staking may be the freezing of assets until the implementation of this transition — synthetic assets can only be converted back to ETH within the Ethereum 2.0 network.

Although Ethereum's historical energy consumption has been significant, developers have put a lot of effort, time, and intelligence into transitioning from energy-intensive to energy-efficient block production. They have determined that the best way to reduce energy consumption through Proof of Work is to simply "turn it off."

In any case, only when the merge happens, everything will become more transparent. And for now, you can find favorable Ethereum exchange rates on our website

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© – , updated 07/24/2023
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